Gold is much more than an asset for Indian households. In addition to its significant cultural value, gold is often associated with financial wellbeing. The yellow metal has always been a part of Indian investment portfolios––earlier, as ornaments inherited by successive generations, and today, in the form of digital gold and ETFs alongside the physical metal, all of which seek to offer gold investment returns.
Table of contents
- Why consider gold as an investment?
- How to invest in gold in India?
- Different ways to invest in gold in India
- Taxation Structure of gold investment of India
- What are the risks of investing in gold in India?
- What is the minimum investment required in gold?
- Comparison of returns and costs of gold investment options
- Availability of gold investment options
- Liquidity of gold investment options
- Factors to Consider Before Investing in Gold
Why consider gold as an investment?
Gold has long been considered a hedge by investors, especially during economic downturns and periods of market volatility, potentially offering a sense of stability in both financial and psychological terms. Here are some of its benefits:
- Natural hedge: Gold is often seen as a hedge against inflation—as the value of currency declines, gold has historically* tended to retain its value or appreciate over time.
- Diversification: Gold prices do not always move in tandem with stocks or bonds. At times, they may move in the opposite direction, which can help lower overall portfolio risk.
- Crisis commodity: During periods of uncertainty, such as economic downturns or geopolitical tensions, gold prices have shown a tendency to rise.
- Liquidity: Gold generally enjoys strong demand and is widely accepted as collateral. This makes it relatively liquid and accessible during periods of financial need.
- Ownership convenience: With instruments like digital gold, ownership has become more convenient, accessible, and secure. This also enhances liquidity, because unlike physical gold, digital gold can be sold online relatively easily, depending on platform policies, demand, and applicable settlement timelines.
*Past performance may or may not be sustained in future.
Also Read: Gold ETFs
How to invest in gold in India?
Investors today have several options to add gold to their portfolios, ranging from traditional physical purchases to modern financial instruments that provide exposure to gold prices. Here are some common ways to invest in gold in India:
Physical gold
Buying gold in the form of jewellery, coins, or bars is the traditional way of investing in gold, although it may involve making charges, storage concerns, and purity considerations.
Gold exchange-traded funds (ETFs)
Gold ETFs are market-linked funds that track the price of physical gold and are traded on stock exchanges, offering investors a convenient way to gain exposure to gold without holding the metal physically.
Sovereign Gold Bonds (SGBs)
Sovereign Gold Bonds are government securities denominated in grams of gold that allow investors to benefit from gold price movements while also earning a fixed annual interest rate.
Gold mutual funds
Gold mutual funds typically invest in Gold ETFs or other gold-related instruments, enabling investors to gain exposure to gold through the mutual fund route without needing a demat account.
Digital gold
Digital gold allows investors to buy and hold gold online in small quantities through platforms that store the equivalent physical gold securely on their behalf.
Different ways to invest in gold in India
Buying gold is easier than ever. Regardless of location or budget, gold investment options are just a click or a walk away.
- Physical gold is widely available through jewellers and banks. However, the authenticity of sources must be validated to avoid purity concerns.
- Gold ETFs and mutual funds are available to be purchased via distributors, mutual fund companies and investment apps/portals.
- SGBs are issued by the government and are also tradable later in the secondary market. While no new SGB tranches have been announced, older issues can be bought on the secondary market.
- Digital gold: Some platforms allow you to buy digital gold (but these are not as tightly regulated as gold bonds or mutual funds).
Gold savings schemes: These are monthly installment plans offered by jewellers leading to gold purchase.
Taxation Structure of gold investment of India
Understanding how gold investments are taxed can help investors evaluate the true return potential of different gold investment avenues. Here is a simplified overview of the taxation structure for common gold investment options in India:
| Investment Avenue | Short-Term Capital Gains (STCG) | Long-Term Capital Gains (LTCG) | Other Tax Rules |
| Gold Mutual Funds | If held for 24 months or less, gains are taxed as per the investor’s applicable income tax slab. | If held for more than 24 months, gains are taxed at 12.5% without indexation. | No GST applies on purchase. |
| Gold ETFs | If held for 12 months or less, gains are taxed as per the investor’s applicable income tax slab. | If held for more than 12 months, gains are taxed at 12.5% without indexation. | A demat account is required, and brokerage charges may apply. |
| Physical Gold | If held for 24 months or less, gains are taxed as per the investor’s applicable income tax slab. | If held for more than 24 months, gains are taxed at 12.5% without indexation. | GST applies on purchase, and making charges may apply in the case of jewellery. |
| Sovereign Gold Bonds (SGBs) held till maturity | Not applicable | Capital gains on redemption at maturity are tax-free for individuals. | Interest earned at 2.5% per annum is taxable as per the investor’s income tax slab. |
| Sovereign Gold Bonds (SGBs) sold before maturity | If held for 12 months or less, gains are taxed as per the investor’s applicable income tax slab. | If held for more than 12 months, gains are taxed at 12.5%. | Capital gains exemption applies only on redemption at maturity; RBI states maturity redemption is exempt for individuals, while transfer taxation follows the applicable rules. (Reserve Bank of India) |
| Digital Gold | If held for 24 months or less, gains are taxed as per the investor’s applicable income tax slab. | If held for more than 24 months, gains are taxed at 12.5% without indexation. | Its tax treatment is generally similar to that of physical gold. |
What are the risks of investing in gold in India?
Understanding the potential risks of investing in gold can help investors make an informed decision and manage their portfolio more effectively. While gold is relatively stable, it is not entirely risk-free. Here are some key risks associated with investing in gold in India:
- Price volatility: The price of gold is influenced by global markets, currency fluctuations, and geopolitical developments.
- Storage: Physical gold requires secure storage, which can incur additional costs and may be exposed to theft or damage.
- No dividends: Gold does not generate dividends and therefore does not provide regular income. SGBs are an exception as they offer a 2.5% annual interest.
- Transaction costs: Physical gold may involve making charges, GST, and brokerage fees that can reduce returns. Gold ETFs and gold mutual funds also carry expense ratios.
What is the minimum investment required in gold?
Gold is widely accessible across different investment avenues and the minimum investment required depends on the instrument chosen.
- Physical gold can be purchased in small units such as a 0.5 gram to 1-gram coin.
- Gold ETFs can be purchased with a minimum investment equal to one unit (which is typically equivalent to 1 gram of gold) plus brokerage charges.
- Sovereign gold bonds also have a similar minimum investment amount of 1 gram.
- Gold mutual funds can be started with SIPs of Rs. 100 in some asset management companies, although the minimum investment amount may vary from one AMC to another.
Comparison of returns and costs of gold investment options
Here is a comparison of the potential returns and costs associated with common gold investment options in India:
| Investment type | Returns | Costs |
| Physical gold | Based on prevailing market price | Making charges, GST, storage costs |
| Gold ETFs | Tracks gold prices, so returns are linked to gold price movements | Brokerage charges and fund management fees |
| Sovereign gold bonds | Gold price appreciation plus 2.5% annual interest | Expense ratio + demat charges (tax exempt, if held till maturity) |
| Gold mutual funds | Returns are linked to underlying gold ETFs | Expense ratio and exit load (if applicable) |
Liquidity of gold investment options in India
Gold generally considered as a relatively liquid asset, although the ease of converting it to cash can vary depending on the form in which it is being held. Here is a comparison of the liquidity of different gold investment options in India:
| Investment type | Liquidity |
| Physical gold | Highly liquid but may incur value loss due to making charges and purity verification |
| Gold ETFs | Instant liquidity via online platforms |
| Sovereign gold bonds | Moderate liquidity due to lock-in periods; tradable on exchanges but may have lower trading volumes and price discovery issues |
| Gold mutual funds | Liquid; units can be redeemed through the AMC or distributor with proceeds credited as per the mutual fund redemption timelines |
Factors To Consider Before Investing In Gold
Here are some important factors investors should evaluate before adding gold to their investment portfolio:
- Investment goal: Investors should assess whether gold fits their financial goals, risk appetite, and overall investment strategy.
- Price movements: Gold prices are influenced by global economic conditions, currency fluctuations, demand and supply, and geopolitical events.
- Investment format: Investors should choose the mode of investment—such as physical gold, ETFs, sovereign gold bonds, or gold mutual funds—based on their convenience, liquidity needs, and preferences.
- Storage and safety: Physical gold requires secure storage, which may involve additional costs and risks.
- Costs and charges: Expenses such as making charges, GST, brokerage, or fund management fees can affect overall returns.
- Liquidity: Different gold investment options offer different levels of liquidity and ease of redemption.
Also Read: Gold ETF vs gold mutual fund
Conclusion
Gold has been an important part of Indian portfolios for generations. Today, investors have a multitude of ways to invest in gold and earn potential returns. This has paved the way for investors to expand their portfolios and hedge other forms of investments against gold. Therefore, gold is a key asset in potential long-term wealth creation and diversification.
FAQs
How much should I invest in gold in India?
It’s a personal choice and depends on your goals, risk profile and other investments.
Is gold investment in India profitable?
In the long term, gold can deliver reasonable potential returns. Additionally, it can provide a hedge against inflation and volatility.
What affects the gold prices in India?
Global gold prices, currency fluctuations, demand-supply dynamics, inflation, and geopolitical events, among other factors, can influence gold rates in India.
Should I make a gold investment in India?
The choice depends on your personal preferences, investment approach and priorities. Gold can be a suitable addition to a diversified portfolio that also contains other asset classes such as stocks or equity mutual funds for long-term growth potential and bonds or debt funds for relative stability.
Are gold ETFs better than gold funds?
Neither option is inherently better. Gold ETFs may have relatively lower expense ratios than gold mutual funds but can only be purchased on the stock exchange through a demat account. Gold mutual funds, meanwhile, can be bought through a registered mutual fund distributor or directly from the Asset Management Company.
How can beginners invest in gold?
Beginners can invest in gold through various options such as gold ETFs, gold mutual funds, digital gold, or sovereign gold bonds. The choice depends on factors such as investment amount, liquidity needs, and whether the investor prefers physical or financial forms of gold.
Can I invest Rs. 1,000 in gold?
Yes, investors can start investing in gold with relatively small amounts through options such as digital gold or gold mutual fund SIPs. The minimum investment amount may vary depending on the investment platform or scheme.
What is the best way to invest in gold?
There is no single best way to invest in gold, as the choice depends on an investor’s goals, liquidity needs, and preferred investment format. Financial instruments such as gold ETFs, sovereign gold bonds, and gold mutual funds are commonly used options.
What has been the 20-year return of gold?
Over long periods, gold has delivered moderate returns, although performance can vary across market cycles. Historical returns depend on factors such as global gold prices, currency movements, and economic conditions.
What has been the 10-year return of gold?
Gold’s 10-year returns can vary depending on the period considered and prevailing market conditions. Investors often view gold as a diversification asset rather than a primary growth investment.
How can I invest Rs. 10 lakhs in gold?
Investors planning to allocate a larger amount to gold may diversify across different options such as sovereign gold bonds, gold ETFs, or gold mutual funds. The appropriate allocation should depend on the investor’s portfolio strategy and financial goals.
